TLJ News from April 21-25, 2008

FCC Releases Inspector General's D Block Investigation Report

4/25. The Federal Communications Commission (FCC) released a report [PDF] from FCC Inspector General (FCC/IG) Kent Nilsson to FCC Chairman Kevin Martin titled "D Block Investigation".

The D Block in the recently completed Auction No. 73 was 10 MHz of paired spectrum (758-763 and 788-793). It was auctioned as one nationwide license, and subject to a Public/Private Partnership. That is, the plan was for a commercial licensee to build a nationwide broadband interoperable network for use by public safety entities. It would then have preemptible secondary access to the spectrum. However, no bidder bid the reserve price. The Public Safety Spectrum Trust (PSST) was selected by the FCC to be the public safety licensee for this spectrum.

See, stories titled "FCC Closes 700 MHz Auction" in TLJ Daily E-Mail Alert No. 1,734, March 20, 2008, and "FCC Releases Details of 700 MHz Auction" in TLJ Daily E-Mail Alert No. 1,735, March 24, 2008.

The FCC then issued an order that announced that "Because the aggregate reserve price for the D Block was not met, there is no winning bidder for that license. Given that the reserve price was met for all other blocks, we find it is in the public interest to provide additional time to consider all options with respect to the D Block spectrum. Therefore, we elect not to re-offer the D Block license immediately in Auction 76." See, story titled "FCC Will Not Offer D Block in Auction 76" in TLJ Daily E-Mail Alert No. 1,735, March 24, 2008.

Harold Feld, of the Media Access Project (MAP), sent a letter [PDF] to Martin on March 19, 2008, in which he asked the FCC to "investigate carefully the allegations surrounding a purported meeting between Frontline, its financial backers, and Morgan O’Brien of Cyren Call that may have had the effect of preventing Frontline from attracting needed capital and discouraging other bidders."

The just released FCC/IG report states that on March 20, 2008, Martin asked the FCC/IG to open an investigation. The report states that this investigation was regarding "allegations in several online wireless newspapers and ``blogs´´ and included in" Feld's letter.

The report finds that "Cyren Call officials met with Frontline and Verizon to discuss an estimated spectrum lease payment amount of $50 to $55 million (amount varied depending on the interviewee) per year for a period of ten years. All of these meetings took place prior to the ``Quiet Period,´´ when the anti-collusion rule was in effect. (Parentheses in original. Footnote omitted.)

It also finds that "The lease payment was discussed as an estimated amount that was included in the PSST business plan, but it was clear that the actual number would result from negotiations after the auction. Frontline, as well as other entities interviewed, stated that the lease payment amount was only one of many factors it considered in deciding whether to participate in the D Block. Witnesses from all of the entities interviewed also described a host of problems and concerns with the D Block that, as a whole, deterred their participation in the D Block."

The FCC/IG concludes that "the evidence established that the lease payment discussed at Cyren Call’s meetings with Verizon and Frontline was not the only factor in the companies' decision not to bid on the D Block. Rather, potential bidders stated that the uncertainties and risks associated with the D Block, including, but not limited to, the negotiation framework with PSST, the potential for default payment if negotiations failed, and the costs of the build-out and the operations of the network, taken together, deterred each of the companies from bidding on the D Block.

Gigi Sohn, head of the Public Knowledge, stated in a release that "this narrow investigation showed that the D-block auction was fatally flawed by terms and conditions set both by the Commission and by the public safety community. The controversial $50 million lease payments suggested by the public-safety community to potential bidders were only one factor. While the Inspector General found that none of this was against the rules, the conclusion needs to be drawn that the auction was doomed to failure. The Commission should take a more active role in future auctions to make certain public safety receives the spectrum it deserves. We look forward to the Commission’s notice on the next version of the auction."

OUSTR Releases 2008 Special 301 Report

4/25. The Office of the U.S. Trade Representative (OUSTR) released its annual report [51 pages in PDF] titled "2008 Special 301 Report".

Section 301 is the statutory means by which the US asserts its international trade rights, including its rights under WTO Agreements. In particular, under the "Special 301" provisions of the Trade Act of 1974, the OUSTR identifies trading partners that deny adequate and effective protection of intellectual property or deny fair and equitable market access to U.S. artists and industries that rely upon intellectual property protection.

The report states that "The Administration's top priorities this year continue to be addressing weak IPR protection and enforcement, particularly in China and Russia. Although this year's Special 301 Report shows positive progress in many countries, rampant counterfeiting and piracy problems have continued to plague China and Russia".

The report devotes 15 of its 51 pages to the People's Republic of China (PRC), and only one page to Russia.

Susan Schwab, the U.S. Trade Representative, stated in a release that "Our bilateral engagement with China, Russia and other trading partners complement our efforts to enforce our rights through the WTO. The Administration will continue to defend vigorously American innovation".

The 2008 Priority Watch List (PWC) contains 9 nations: PRC, Russia, Argentina, Chile, India, Israel, Pakistan, Thailand, and Venezuela.

The 2008 WL contains 36 nations, including Brazil, Canada, Italy, Korea, Mexico, and Taiwan.

The composition of the PWL and WL are little changed from 2007. Pakistan was elevated from the WL to the PWL. Algeria and Norway were added to WL.

Ukraine was lowered from PWL to WL because of its efforts to deal with optical disk piracy. Egypt, Lebanon and Turkey were also lowered from the PWL to the WL.

Spain. Spain was added to the WL due to "the growing problem of Internet piracy, described by U.S. copyright industries as one of the worst in Europe."

Dan Glickman, head of the Motion Picture Association of America (MPAA), stated in a release that "I fully agree with the USTR's decision to add Spain to the Watch List ... Internet piracy in Spain has reached an epidemic level, damaging both U.S. and Spanish creators. There is strong local support in Spain for increased cooperation with Internet service providers and I hope that the new government will respond favorably."

Taiwan. With respect to Taiwan, the report states that "An Out-of-Cycle Review will be initiated in the immediate future and completed this summer to monitor progress on selected outstanding issues to consider whether Taiwan should be removed from the Watch List. Progress by Taiwan on improving its IPR regime this past year includes the June passage by the Legislative Yuan (LY) of a new law aimed at ending illegal file-sharing over peer-to-peer (P2P) platforms, which enabled officials to shut down some of the worst violators; continued efforts to establish an IP section at the Special Prosecutor’s Office; and creation and issuance in October 2007 of the Action Plan for Protecting IP Rights on School Campuses."

Korea. The report states that Korea remains on the WL. The US and Korea have negotiated a free trade agreement (FTA) that addresses in detail IPR. The report states that "Korea has agreed to strengthen considerably its IPR protection and enforcement regimes" and that "adherence to these commitments will lead to a significant improvement in IPR protection as well as a reduction in piracy and counterfeiting in the Korean market".

The report does not go on to elaborate that Congressional Democrats are blocking approval of this FTA.

Russia. Russia remains on the PWL in 2008.

The report states that "The U.S. copyright industries estimate that they lost in excess of $1.4 billion in 2007 due to copyright piracy in Russia. The U.S. copyright industries continued to report that in 2007, Russia’s optical disc production capacity was far in excess of domestic demand, with pirated products being produced both for domestic consumption and export. Due to growing broadband penetration and the continued proliferation of pirate websites, the United States remains concerned about Internet piracy in Russia."

The report finds that there is "weak enforcement against piracy and counterfeiting" in Russia, that "prosecutions and adjudications of IP cases remain sporadic and inadequate", and that there is "a lack of transparency and a failure by courts to impose deterrent penalties for IPR violators".

PR China. The report states that "China remains a top intellectual property enforcement and TRIPS compliance priority", and will remain on the PWL and subject to Section 306 monitoring.

The report states that "overall piracy and counterfeiting levels in China remained unacceptably high in 2007. The U.S. copyright industries estimate that 85 percent to 95 percent of all of their members’ copyrighted works sold in China was pirated, indicating no improvement over 2006."

The report continues that "Internet piracy is increasing, as is piracy over closed networks such as those of universities, in addition to concerns over webcasting of various kinds. The rapid increase in the Internet to over 210 million users suggests that this challenge is likely to continue to grow, with many industry groups focused predominantly on Internet piracy."

The report also states that "Industry has identified Baidu as the largest China-based ``MP3 search engine´´ offering deep links to copyright-protected music files for unauthorized downloads or streaming. Baidu is the target of ongoing infringement actions."

Neil Turkewitz, of the Recording Industry Association of America (RIAA), stated in a release that "Baidu are traded on NASDAQ, and that Baidu has just announced that it posted a 71 percent increase in 2008 first-quarter profits. Baidu's inclusion on this list of bad actors will hopefully cause it to abandon a business built on piracy. It is reported that Baidu accounts for the delivery of over 50 percent of the infringing music files in China, and its SEC disclosure gives eerie witness to the importance of its music service (providing links to infringing files) to the company’s bottom line. A 71 percent increase in profits should not be built on the back of piracy." (Parentheses in original.)

The report adds that "trade in pirated optical discs continues to thrive, supplied by both licensed and unlicensed factories and by smugglers."

It reports that "Piracy of books and journals and end-user piracy of business software also remain key concerns." And, "Chinese counterfeits include many products, such as pharmaceuticals, electronics, batteries, auto parts, industrial equipment, toys, and many other products, that pose a direct threat to the health and safety of consumers in the United States, China and elsewhere."

The report concludes that "Inadequate IPR enforcement is a key factor contributing to these shortcomings, with high criminal thresholds as well as difficulties in initiating or transferring cases for criminal prosecution resulting in limited deterrence. Civil damages are also low."

It adds that "right holders report that enforcement efforts, particularly at the local level, are hampered by poor coordination among Chinese Government ministries and agencies, local protectionism and corruption, high thresholds for initiating investigations and prosecuting criminal cases, lack of training, and inadequate and non-transparent processes."

The report also blames "China’s chronic underutilization of deterrent criminal remedies."

It recommends that the PRC "should also provide strong administrative supervision, backed by penalties, to ensure that Internet service providers take down infringing content and/or links immediately upon receipt of a notice from internationally recognized right holders’ representatives; take steps to suspend or terminate the accounts of serious or repeat infringers when they become aware of such infringers; and provide information about the identity of direct infringers to right holders (or to groups representing right holders) when requested." (Parentheses in original.)

The report also details IPR issues at the provincial and local level in the PRC.

More Reaction. Representatives of industry sectors that create conceptual property praised the OUSTR report.

Eric Smith, head of the International Intellectual Property Alliance (IIPA), stated in a release [PDF] that "China and Russia again remain the two countries that are of major concern to the copyright industries, as they were in 2007 and prior years".

He added that "While there have been some positive developments in both these key markets over the year, enforcement efforts remain inadequate, and the copyright industries continue to await truly effective and deterrent enforcement (especially criminal enforcement) in both countries, enhanced legal reform, and greater market access for legitimate copyrighted materials." (Parentheses in original.)

Patrick Ross, head of the Copyright Alliance, stated in a release that "Demand for America's copyrighted works drives the nation's economy, creates personally and financially rewarding jobs and contributes to the positive side of the trade books. But intellectual property theft on a global scale is threatening America's creators."

David Israelite, head of the National Music Publishers Association (NMPA), stated in a release that "The effects of global piracy trickle down to every songwriter, whether in lost direct sales of today’s hit songs or in lost opportunity for cultivating tomorrow's platinum talent. Music is just one piece of America’s broad copyright industries, which each year lose billions to copyright infringement worldwide."

10th Circuit Considers Product Bundling and Discounts Under Colorado Competition Law

4/25. The U.S. Court of Appeals (10thCir) issued its opinion [29 pages in PDF] in Parish Oil Co. v. Dillon Companies, reversing the judgment of the District Court.

Introduction. This is a state competition law case involving bundled discounts. The defendant retailer offered discounts on gas when consumers also purchased groceries. This case was decided under a Colorado state statute regulating gasoline sales.

However, persons interested in technology law and policy may take note of this case because of the potential application of competition law to bundled discounts in the telecom and tech sectors, such as triple play (broadband, voice and video) and wireless (device and service) discounts.

The Court of Appeals' lengthy opinion discusses bundled discounts generally. Also, in dicta it considers the example of bundling of below cost cell phones and cell phone service.

The Court of Appeals reversed the judgment of the District Court for the complaining gas retailers, and in so doing stated that the plaintiffs' interpretation would lead to a ban on phone and service plan discounts.

Background. Dillon Companies operates grocery stores in Colorado that also sell gas. It offered discounts on gas to customers who also shopped in the grocery store.

The Colorado Unfair Practices Act (UPA), is a 1930s era statute, since amended, that prohibits below cost sales for the "purpose of injuring competitors and destroying competition", and below cost motor fuel sales regardless of intent, subject to an exception for certain types of product bundling.

That exception provided that "For the purpose of preventing evasion of the provisions of this article in all sales involving more than one item or commodity and in all sales involving the giving of any concession of any kind, whether it be coupons or otherwise, the vendors’ or distributors’ selling price shall not be below the cost of all articles, products, commodities, and concessions included in such transactions."

Gas retailers filed a complaint in U.S. District Court (DColo) alleging violation of the Colorado ban on below cost gas sales. Jurisdiction rests upon diversity of citizenship. The trial jury returned a verdict for the plaintiffs, and the District Court awarded treble damages pursuant to the statute.

Court of Appeals. The Court of Appeals reversed. In construing the exception, it considered the underlying purpose of the UPA, and discussed examples of product bundling in other industries, including cell phones.

It wrote, "Consider a cellular service provider. It sells phones for $100, above cost, but if a customer will sign a two-year service contract he may have the phone for a dollar. The plaintiffs’ reading would likely prohibit this common practice, especially if the entire purchase price (for the telephone and the service plan) is not paid up front and together, because the price of the phone itself would have to be considered ``separately´´ from the price of the cellular service." (Parentheses in original.)

The Court of Appeals construed the exception "to mean that where the ability to make a purchase at a concession price is expressly contingent on the purchase of other goods, the concession goods are sold below cost only if the total price paid by the customer for the goods involved in such linked transactions is below the total cost of such goods."

That is, the bundling retailer (in this case groceries and gas) can under the UPA sell one product (gas) at below cost, if such sales are conditioned on the purchase of enough of the other product (groceries) above cost that the combined transaction comes in at a profit.

The Court of Appeals did not discuss the federal Sherman Act. And, the holding of this case only applies to legality of the bundling of gas and other products in the state of Colorado under Colorado law.

See also, story titled "9th Circuit Rules on Application of Antitrust Law to Bundling Discounts" in TLJ Daily E-Mail Alert No. 1,634, September 5, 2008.

Case Information. This case is Parish Oil Co., Inc., et al. v. Dillon Companies, Inc., U.S. Court of Appeals for the 10th Circuit, App. Ct. No. 07-1032, an appeal from the U.S. District Court for the District of Colorado, D.C. No. D.C. No. 1:05-CV-00081-REB-PAC.

Judge Michael McConnell wrote the opinion of the Court of Appeals, in which Judges Tacha and Hartz joined. McConnell was one of President Bush's first judicial nominees in 2001. He went to the University of Chicago law school, and later taught there for ten years.

The law firm of Hogan & Hartson represented plaintiff gas only retailers. The law firm of Arnold & Porter represented the defendant grocery and gas retailers.

DC Circuit Grants Petition for Review of FCC BPL Order

4/25. The U.S. Court of Appeals (DCCir) issued its opinion [38 pages in PDF] in American Radio Relay League v. FCC, granting in part a petition for review of the Federal Communications Commission's (FCC) broadband over powerline (BPL) order.

The opinion will affect more than BPL. It will affect the FCC's rule making process. The Court of Appeals held that the FCC cannot conduct and rely upon studies in writing rules, but refuse to disclose the full text of those studies.

The Court of Appeals granted a petition for review of the FCC's BPL order on the grounds that the FCC violated the notice and comment requirements of the Administrative Procedure Act (APA) by conducting tests, writing studies, and relying upon those studies in writing its final order, without making the full text of those studies available to the public for review and comment, where the failure to disclose prejudiced the petitioning party.

In order to promote broadband deployment and competition, the FCC adopted rules in 2004 allowing and governing "Access Broadband over Power Line" systems. FCC licensed amateur radio operators opposed this action, on the grounds that BPL systems would create interference with their operations.

The FCC's order explained that "The interference concern regarding BPL operation arises from the fact that electric power lines are not shielded and therefore portions of any RF energy they may carry can be radiated. While the power distribution management devices, such as transformers, and sometimes underground placement of lines that are characteristic of many electric utility systems tend to substantially diminish the effectiveness of these systems as radiators of RF energy, the potential for significant radiation of RF energy from utility systems that carry RF signals nonetheless remains. This ``signal leakage,´´ ... can become harmful interference if not carefully managed. That is, radio systems using the same frequency bands as those on which local Access BPL signals are transmitted could possibly receive harmful interference from such signal leakage if adequate safeguards are not in place."

The FCC therefore adopted rules that require Access BPL manufacturers and operators to comply with certification requirements and emission limits. These rules also establish a nationwide database of Access BPL operations in order to facilitate identification of a source of interference and its resolution.

The Court of Appeals wrote that the FCC order "acknowledged that ``some cases of harmful interference may be possible from Access BPL emissions at levels up to the Part 15 limits´´ but it was satisfied that ``the benefits of Access BPL service warrant acceptance of a small and manageable degree of interference risk.´´ ... The Commission concluded that the risk of such harmful interference was ``low.´´"

In reaching its low likelihood conclusion, the FCC Commission stated that the record, investigations and field tests indicate that Access BPL network systems can generally be configured and managed to minimize and/or eliminate harmful interference potential to licensed radio services".

However, when the amateur radio operators sought disclosure of these tests, the FCC refused, or only provided redacted copies.

The Court of Appeals wrote that "At issue are five scientific studies consisting of empirical data gathered from field tests performed by the Office of Engineering and Technology. Two studies measured specific Access BPL companies' emissions, and three others measured location-specific emissions in pilot Access BPL areas in New York, North Carolina, and Pennsylvania. In placing the studies in the rulemaking record, the Commission has redacted parts of individual pages, otherwise relying on those pages."

Then, the FCC denied petitions for reconsideration.

The FCC promulgated its original BPL rules in its Report and Order [86 pages in PDF] adopted on October 14, 2004, and released on October 28, 2004. That R&O is FCC 04-245 in ET Docket No. 04-37 and ET Docket No. 03-104. See also, story titled "FCC Adopts BPL Report and Order" in TLJ Daily E-Mail Alert No. 997, October 15, 2004, and story titled "FCC Adopts Broadband Over Powerline NPRM" in TLJ Daily E-Mail Alert No. 836, February 13, 2004. The FCC released the text [38 pages in PDF] of the NPRM on February 23, 2004.

The FCC issued a Memorandum Opinion and Order (MOO) on August 3, 2006, that responded to petitions for reconsideration of the rules applicable to BPL systems. That MOO is FCC 06-113 in ET Docket Nos. 04-37 and 03-104. See, story titled "FCC Adopts MOO Regarding BPL Systems" in TLJ Daily E-Mail Alert No. 1,424, August 3, 2006.

The Amateur Radio Relay League (ARRL) petitioned for review, on several grounds. The Court of Appeals granted the petition on one procedural argument.

The Court of Appeals held that the FCC "failed to satisfy the notice and comment requirements of the Administrative Procedure Act (``APA´´) by redacting studies on which it relied in promulgating the rule and failed to provide a reasoned explanation for its choice of the extrapolation factor for measuring Access BPL emissions."

The Court of Appeals wrote that the "APA requires an agency to publish ``notice´´ of “either the terms or substance of the proposed rule or a description of the subjects and issues involved,´´ in order to ``give interested persons an opportunity to participate in the rule making through submission of written data, views, or arguments,´´ and then, ``[a]fter consideration of the relevant matter presented, the agency shall incorporate in the rules adopted a concise general statement of their basis and purpose.´´"

The Court of Appeals added that notice is sufficient if it affords interested parties a reasonable opportunity to participate in the rulemaking process, and if the parties have not been deprived of the opportunity to present relevant information by lack of notice that the issue was there.

The Court of Appeals held that "It would appear to be a fairly obvious proposition that studies upon which an agency relies in promulgating a rule must be made available during the rulemaking in order to afford interested persons meaningful notice and an opportunity for comment."

The Court of Appeals cited Portland Cement Ass’n v. Ruckelshaus, 486 F.2d 375 (DC Cir, 1973), as authority for this proposition.

The Court wrote that where the FCC's determination is based upon a complex mix of controversial and uncommented upon data and calculations, there is no APA precedent allowing an agency to cherry-pick a study on which it has chosen to rely in part.

The Court of Appeals also wrote that the Court can only set aside such an order if the petitioner suffered prejudice from the agency's failure to provide an opportunity for public comment. It found that the ARRL made such a showing.

The Court granted the petition in part, and remanded to the FCC, with instructions that the FCC "shall" make available for notice and comment the unredacted technical studies and data that it has employed in reaching decisions, and "shall" make them part of the rulemaking record. The opinion does not use the word "vacate".

All three members of the three judge panel wrote opinions. Judge Brett Kavanaugh concurred as to violation of the APA by reliance upon redacted studies, but dissented as to the instruction to the FCC to provide a reasoned explanation for its choice of the extrapolation factor for measuring Access BPL emissions.

He also wrote that Portland Cement "stands on a shaky legal foundation (even though it may make sense as a policy matter in some cases)" and "cannot be squared with the text of § 553 of the APA". (Parentheses in original.)

In contrast, Judge Tatel wrote that "Nor is there any doubt that, as our case law makes clear, the APA means exactly what it says: an agency must make the ``whole record´´ available, especially where, as here, the undisclosed portions might very well undercut the agency’s ultimate decision".

This case is American Radio Relay League v. FCC and USA, U.S. Court of Appeals for the District of Columbia Circuit, App. Ct. No. 06-1343, a petition for review of final orders of the FCC. Judge Rogers wrote the opinion of the Court of Appeals, in which Judges Tatel and Kavanaugh joined.

People and Appointments

4/25. President Bush named Richard O'Donoghue Associate Counsel to the President. See, White House release.

4/25. Bradley Buswell was named first Deputy Under Secretary for the Department of Homeland Security's (DHS) Science and Technology (S&T) Directorate. See, DHS release.

More News

4/25. The Anti-Spyware Coalition (ASC) announced in a release that it "has created a new internal working group to review the ASC's current working reports in the context of new behavioral targeting practices. Members will consider whether revisions to current working reports or additional best practices are necessary. At a recent ASC meeting, members agreed to review the privacy concerns that rise out of partnerships between behavioral targeting advertising companies and ISPs, where all, or substantially all, user Web traffic is passed to advertisers in order to allow them to engage in targeted advertising."

4/25. The recently created iGrowthGlobal announced that it has changed its name to the Technology Policy Institute (TPI). It is a Washington DC based think tank that focuses on the economics of innovation, technological change, and related regulation, particularly with respect to communications and broadband policy, online privacy, and internet governance. Its key personnel, Tom Lenard, Scott Wallsten, and Garland McCoy, were previously associated with the Progress & Freedom Foundation (PFF).

Sen. Stevens Introduces VOIP Regulation Bill

4/24. Sen. Ted Stevens (R-AK) and other Senators introduced S 2919 [LOC | WW | PDF], the "Signaling Modernization Act of 2008".

This bill would add a new Section to the Communications Act titled "Network Traffic Identification Accountability Standards". It would impose legacy telecommunications technology mandates on voice over internet protocol (VOIP) service providers. Specifically, it would require VOIP service providers to generate information for all communications that originate on its network to facilitate legacy intercarrier billing practices.

The term "intercarrier compensation" is often associated with other terms, such as "obsolete", "broken", "dysfunctional", "outdated" and "legacy". It refers to the payments that one communications carrier pays to another carrier to originate, transport, and/or terminate telecommunications traffic.

The FCC has a long running and incomplete rule making proceeding regarding reform of the intercarrier compensation regime. The FCC issued a Notice of Proposed Rulemaking [70 pages in PDF] in April of 2001. This proceeding is titled "In the Matter of Developing a Unified Intercarrier Compensation Regime". This NPRM is FCC 01-132 in CC Docket No. 01-92. The FCC issued a Further NPRM [116 pages in PDF] in March of 2005; it is FCC 05-05-33. The FCC also issued a Public Notice [3 pages in PDF] in July of 2006.

The FCC's web site reflects that as of April 30, 2008, 2,289 comments and notices had been filed in this proceeding. However, after seven years, the FCC has failed to fix, reform, or modernize the intercarrier compensation regime.

Sen. Stevens' bill does not attempt to reform the intercarrier compensation regime. Rather, it would compel new technologies and services to conform to this legacy system.

If enacted, this bill would constitute another in a series of Congressional and FCC efforts to impose legacy mandates and technologies on VOIP communications. Others include 911 and CALEA initiatives.

The bill would provide that "A provider of voice communications service shall ensure that all voice communications service traffic that originates on its network contains the signaling information reasonably needed to facilitate intercarrier billing in accordance with industry standards, as determined by the Commission. Except as otherwise permitted by the Commission, a provider that transports or transits traffic between voice communications service providers shall forward without altering the signaling information it receives from another provider that is reasonably needed to facilitate intercarrier billing in accordance with industry standards."

The bill's definition of "communications" includes "IP-enabled voice service", which it defines as "the provision of real-time two-way voice communications offered to the public, or such classes of users as to be effectively available to the public, transmitted through customer premises equipment using Internet protocol, or a successor protocol, with two-way transmission capability such that the service can originate traffic to, and terminate traffic from, the public switched telephone network."

The bill would also require the FCC within 12 months to complete a rulemaking proceeding implementing this bill.

The FCC's rules, at 47 C.F.R. § 64.1601(a), currently provide that "common carriers using Signaling System 7 and offering or subscribing to any service based on Signaling System 7 functionality are required to transmit the calling party number (CPN) associated with an interstate call to interconnecting carriers".

This CPN data has many uses other than for intercarrier compensation, including caller identification services, government surveillance, and emergency response.

Sen. Ted StevensSen. Stevens (at right) uses the pejorative phrase "phantom traffic" to describe services that do not comply with the mandates of this bill.

He stated in a release that "Phantom traffic has become a problem for rural carriers in Alaska and throughout rural America ... Phantom traffic prevents carriers from collecting funds they are owed, which in turn impacts universal service and ultimately telephone rates for customers in rural America.  It is time for the FCC to pull back the mask and see who or what is behind phantom traffic".

He stated in the Senate that "Our bill will require all calls from voice communications service providers to contain enough information to allow carriers to bill each other, including voice over internet protocol providers offering 2-way service and providers transiting the traffic between originating and terminating providers. Our bill also directs the FCC to establish rules implementing this requirement within 12 months of enactment, and gives it the authority to adopt enforcement provisions. Phantom traffic steals from rural carriers and customers. I hope Congress and the FCC will look at this issue closely and put an end to phantom traffic." See, Congressional Record, April 24, 2008, at Page S3408.

The other original cosponsors of the bill are Sen. Daniel Inouye (D-HI) and Sen. Byron Dorgan (D-ND), Sen. Gordon Smith (R-OR), Sen. Mark Pryor (D-AR), Sen. John Thune (R-SD) and Sen. Olympia Snowe (R-ME).

The bill was referred to the Senate Commerce Committee (SCC), which held a hearing on this topic on April 23, 2008.

Sen. Inouye, the Chairman of the SCC, wrote in his opening statement [PDF] that "all telephone companies are required to interconnect with each other, to complete a phone call even if the carrier has no relationship with the calling party. Historically, for the system to work, phone companies have sought compensation for the services they provided to other carriers. Today, many telephone companies complain that too many of the calls to their customers arrive lacking signaling information necessary for billing purposes. This so called ``phantom traffic´´ financially burdens small carriers in particular."

Raymond Henagan (Rock Port Telephone Company) testified on behalf of the National Telecommunications Cooperative Association (NTCA). He wrote in his prepared testimony [PDF] that "rural carriers are discovering blatant schemes intended to avoid the payment of access charges entirely".

He wrote that "In its most insidious form, phantom traffic is a result of some carriers stripping the data completely, manipulating the data into an unreadable form, or the outright refusal to pay the intercarrier bill for the calls they send to another carrier’s network. In other cases, phantom traffic materializes as a result of an originating service provider’s failure to attach appropriate call signaling information to its traffic."

He wrote that "11% of calls other carriers sent Rock Port for termination on our network lacked a CPN", and that "small rural carriers across the nation typically receive about 29% of their total net telephone company operating revenue from intercarrier payments."

Angela Simpson (Covad) testified on behalf of the VON Coalition. She wrote in her prepared testimony [PDF] that "the current compensation scheme does not reflect the technological realities of today's communications market. Many new technologies, like some VoIP services, have no business reason to track such information in the traditional way that the ILECs would prefer. And to do so would require extensive network modifications simply to generate artificial information. For example, many innovative Internet based communication services and technologies are not tied inextricably to North American Numbering Plan (``NANP´´) numbers, which are the foundation of many intercarrier compensation calculations. In other instances, the consumer is simply utilizing the full range of features of a technology, whether IP-enabled or wireless, such as using a communications device to originate calls from locations unrelated to the calling party number."

Charles McKee (Sprint Nextel) wrote in his prepared testimony [7 pages in PDF] that his company does not believe that this issue "currently warrants legislation".

Larry Sarjeant (Qwest) wrote in his prepared testimony [PDF] that "phantom traffic ... generally occurs because the current intercarrier compensation regime has not kept pace with technological and competitive changes in the communications market, and as a result, has made certain arbitrage opportunities possible."

He wrote that "Qwest believes that comprehensive intercarrier compensation reform that creates a holistic bill-and-keep-at-the edge regime for all traffic is the only true and complete solution to the phantom traffic problem."

Walter McCormick, head of USTelecom, praised the bill in a release.

Senate Commerce Committee Approves Resolution Condemning FCC Media Ownership Order

4/24. The Senate Commerce Committee (SCC) approved SJRes 28, which provides that "That Congress disapproves the rule submitted by the Federal Communications Commission relating to broadcast media ownership" and "such rule shall have no force or effect."

Sen. Daniel Inouye (D-HI), the Chairman of the SCC, stated in a release that the FCC "rolled back its rules preventing media concentration, despite getting a cautionary light from the Congress that more public comment and more attention to localism and minority ownership was needed before barreling ahead."

The FCC adopted this Report and Order on Reconsideration on December 18, 2007. It released the text [124 pages in PDF] of this item on February 4, 2008.

See also, story titled "FCC Releases Text of Media Ownership Order" in TLJ Daily E-Mail Alert No. 1,714, February 8, 2008, story titled "Copps and Adelstein Complain About FCC Media Ownership Agenda Item" in TLJ Daily E-Mail Alert No. 1,688, December 13, 2007, and story titled "Martin Releases Media Ownership Proposal" in TLJ Daily E-Mail Alert No. 1,675, November 13, 2007.

This item is FCC 07-216 in MB Docket No. 06-121, MB Docket No. 02-277, MM Docket No. 01-235, MM Docket No. 01-317, MM Docket No. 00-244, MB Docket No. 04-228, and MM Docket No. 99-360.

Ken Ferree, head of the Progress & Freedom Foundation (PFF), stated in a release that "I continue to wonder what year those who are opposed to media liberalization think it is. The Senate Commerce Committee resolution rejecting the FCC's attempt to throw a life-line to struggling traditional broadcast and newspaper media outlets can only be motivated by willful ignorance of the fierce competition that now exists in the media space. Do they think this still is 1970 and that the media landscape in local markets is dominated by a couple of newspapers and a handful of broadcast stations? Are members of the Committee unaware of the almost daily reports of newspaper companies reporting negative growth? Do they not understand that broadcast advertising revenues rapidly are migrating to new media platforms -- along with audiences? Sadly, the apparent intentional refusal to acknowledge the obvious will only hasten the demise of our most venerable forms of mass communication."

In contrast, Caroline Fredrickson of the ACLU stated in a release that "Senator Dorgan's resolution aims to protect the airing of a multiplicity of voices, which fuels our democracy. Democracy is not served well by a media oligarchy where five or six corporations decide what Americans see in the news."

She added, "The consolidation of TV, radio and newspaper ownership that has occurred already limits the scope of the marketplace of ideas and hinders vigorous public debate, thereby posing a great threat to the First Amendment rights of all Americans."

More New Bills

4/24. Rep. Howard Berman (D-CA) and others introduced HR 5889 [20 pages in PDF], the "Orphan Works Act of 2008". Sen. Patrick Leahy (D-VT) and others introduced the companion bill in the Senate.

4/24. Rep. Mike Burgess (R-TX) introduced HR 5885 [LOC | WW], the "Health Information Technology Promotion Act of 2008". This bill was referred to the House Commerce Committee (HCC) and the House Ways and Means Committee.

People and Appointments

4/24. The Senate Judiciary Committee (SJC) approved the nomination of  Mark Davis to be a Judge of the U.S. District Court for the Eastern District of Virginia.

4/24. The Senate Judiciary Committee (SJC) approved the nomination of David Kays to be a Judge of the U.S. District Court for the Western District of Missouri.

4/24. The Senate Judiciary Committee (SJC) approved the nomination of Stephen Limbaugh to be a Judge of the U.S. District Court for the Eastern District of Missouri.

Kristen Silverberg4/24. President Bush nominated Kristen Silverberg (at right) to be Representative of the United States of America to the European Union. She is currently currently Assistant Secretary of State (International Organization Affairs). Previously, she was Deputy Assistant to the President and Advisor to the Chief of Staff. And before that she was a law clerk for Justice Clarence Thomas and Judge David Sentelle. See, White House release and release. President Bush withdrew his nomination of Boyden Gray for this position. Bush first nominated Gray in 2005. The Senate has not acted on his nomination. Although, he did previously hold a recess appointment. See, story titled "Bush Nominates Boyden Gray to be US Representative to EU" in TLJ Daily E-Mail Alert No. 1,182, July 26, 2005.

More News

4/24. A grand jury of the U.S. District Court (DKan) returned an indictment that charges Leonard Douglas LaDuron, former President of Serious ISP Inc., Myco Technologies Inc. and Elephantine Corporation, Mary Jo LaDuron, aka Mary Jo Gault, and others with criminal conspiracy in connection with their defrauding of the Federal Communications Commission's (FCC) e-rate subsidy program. See, Department of Justice (DOJ) release.

4/24. The Senate Judiciary Committee (SJC) approved S 2533 [LOC | WW], the "State Secrets Protection Act".

4/24. The Federal Communications Commission (FCC) adopted and released a Memorandum Opinion and Order [31 pages in PDF] in its proceeding titled "In the Matter of Petition of AT&T Inc. For Forbearance Under 47 U.S.C. § 160 From Enforcement of Certain of the Commission’s Cost Assignment Rules [and] Petition of BellSouth Telecommunications, Inc. For Forbearance Under 47 U.S.C. § 160 From Enforcement of Certain of the Commission’s Cost Assignment Rules". The FCC granted both petitions, subject to conditions. Commissioners Michael Copps and Jonathan Adelstein dissented. See, joint statement. This item is FCC 08-120 in WC Docket Nos. 07-21 and 05-342.

More News

4/23. The Department of Justice (DOJ) filed a criminal complaint in U.S. District Court (DKan) against Benjamin Rowner and Jay H. Soled alleging criminal conspiracy in connection with their defrauding of the Federal Communications Commission's (FCC) e-rate subsidy program. The DOJ also announced in a release that the two defendants have agreed to plead guilty.

Kroes Discusses Proposal for Euro Class Action Antitrust Litigation

4/22. Nellie Kroes, the European Commission's (EC) competition commissioner, gave a speech in Strasbourg, France, in which she discussed the EC paper [PDF] titled "Damages actions for breach of the EC antitrust rules".

The EC released this paper on April 3, 2008. See, story titled "EC Releases Paper on Private Rights of Action for Violation of Competition Law" in TLJ Daily E-Mail Alert No. 1,742, April 7, 2008.

Nellie KroesThe paper proposed creating "collective redress mechanisms". While these mechanisms might have some of the attributes of U.S. class action litigation, Kroes (at left) used her Strasbourg speech to attempt to distance the EC proposal from the U.S. system.

She stated that "There must therefore be an alternative form of collective redress to representative actions by which victims of competition law infringements combine their individual claims for harm they suffered into one single action. But let me be crystal clear on this: we are not proposing an American-style opt-out class action, where basically anyone can bring a claim on behalf of a group of unidentified victims, who are in the boat unless they explicitly decide to be out. What the White Paper proposes is an opt-in collective action, where victims have to actively decide whether or not they want to be part of the action. Besides, much of the US class action litigation excesses in competition cases is due to other factors such as treble damages, jury trials, contingency fees and overly broad and burdensome pre-trial discovery. None of this is part of the White Paper’s proposals."

She also stated that "we have designed our representative action proposals to guard against excessive litigation and the risk of abuses. Member states will be able to issue the mandate to bring representative actions to trustworthy entities only. The mandate must not be given to an uncontrolled litigation vehicle set up by lawyers who may be pursuing primarily their own financial interests. The body in charge of representative actions must rather be an entity that acts exclusively for the protection of legitimate and defined interests (e.g. consumer interests). The threat of a withdrawal of the mandate to bring representative actions by the Member State acts as an additional safeguard against abuses of the mandate." (Parentheses in original.)

Court of Appeals Rules in Rambus v. FTC

4/22. The U.S. Court of Appeals (DCCir) issued its opinion [24 pages in PDF] in Rambus v. FTC, a antitrust case regarding Rambus's participation in the JEDEC standards setting process and assertion of patent rights. The Court of Appeals set aside the FTC's order concluding that Rambus violated Section 2 of the Sherman Act and Section 5 of the FTC Act. See, full story.

Senate to Proceed on Agee Nomination to 4th Circuit

4/22. The Senate Judiciary Committee (SJC) has scheduled a hearing on the nomination of Judge Steven Agee to be a Judge of the U.S. Court of Appeals (4thCir). The hearing will be on Thursday, May 1, 2008, at 10:00 AM.

The 4th Circuit hears a disproportionate number of cases in technology related areas of law, in part because of the technology companies situated in northern Virginia.

Agee is currently a Judge of the Supreme Court of Virginia.

Sen. Patrick Leahy (D-VT), the Chairman of the SJC, issued a release in which he offered his interpretation of what has transpired. "After withdrawing the nomination of Duncan Getchell in January, last month the President nominated Steven Agee to a Virginia vacancy on the Fourth Circuit. Unlike previous nominees, Agee has the bipartisan support of Virginia’s Senators, one a Republican and one a Democrat."

Sen. Leahy also wrote that "In 2003, the President nominated Jim Haynes to fill a Virginia seat on the appeals court in the Fourth Circuit. That nomination of the general counsel of the Defense Department, who oversaw the creation and approval of detention and interrogation policies and practices that remained cloaked in secrecy and have led to international scorn, met with bipartisan objections. It was ultimately returned to the President and not re-nominated. Despite earlier recommendations from Virginia Senators John Warner (R) and Jim Webb (D), the President last year then nominated Duncan Getchell. After public opposition from Warner and Webb, Getchell’s nomination was also withdrawn."

Yet, in March President Bush nominated Agee for the seat vacated by former Judge Michael Luttig. See, White House release. Luttig was appointed by the first President Bush, and was long considered by Republicans to be a leading candidate for appointment to the Supreme Court in any Republican administration. However, President Bush passed over Luttig when he appointed Sam Alito and John Roberts in 2005. Luttig then resigned, and took his current position as General Counsel of the Boeing Company.

Sen. Leahy also wrote that "After years of delay, the President has finally heeded the advice of Senator Warner and Senator Webb, and the Committee is moving forward in its consideration of this circuit court nominee".

Finally, he wrote that "Like the progress made last week in breaking a long-standing impasse in the Sixth Circuit, the Agee nomination breaks the gridlock on the Fourth Circuit. We are taking another step to further reduce judicial vacancies. Circuit court vacancies have already been reduced to the lowest level in more than a decade."

See also, story titled "President Bush and Senate Democrats Reach Compromise on 6th Circuit Nominees" in TLJ Daily E-Mail Alert No. 1,747, April 15, 2008.

Article II of the Constitution provides that the President "shall nominate, and by and with the Advice and Consent of the Senate, shall appoint ... Judges of the supreme Court, and all other officers of the United States ..."

Article III provides that "The judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish."

Long after the drafting of the Constitution, the Congress settled on the current three tier judiciary, with District Courts as trial courts, the Courts of Appeals as intermediate appellate courts, and the Supreme Court.

Presidents and Senates have developed customs regarding the advice and consent process. While there has been considerable debate and give and take between branches of government, political parties, and outside interests, the Senate has exercised considerable control over the selection of District Court Judges, while the President has exercised greater control over the selection of Court of Appeals Judges.

The recent dispositions of vacancies on the 6th and 4th Circuits may reflect not only partisan victories for Democrats in a Senate with a new Democratic majority. It may also reflect a successful assertion of greater Senatorial power at the expense of Presidential power.

SEC Files Complaint Against Broadcom Over Backdated Stock Options

4/22. The Securities and Exchange Commission (SEC) filed a civil complaint in U.S. District Court (CDCal) against Broadcom Corporation alleging violation of federal securities law in connection with backdating of stock options, and resulting overstatement of income. See, SEC release.

The SEC announced that it simultaneously settled with Broadcom. Under this settlement, Broadcom admits no wrongdoing, but consents to entry of an injunction against future violation of federal securities laws, and to pay a $12 Million fine.

The complaint alleges violation of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Securities Exchange Act of 1934, and various SEC rules thereunder.

This case is SEC v. Broadcom Corporation, U.S. District Court for the Central District of California, D.C. No. SACV 08-00430 JVS (RNBx).

People and Appointments

4/22. President Bush announced his intent to nominate Jeffrey Sedgwick to be Assistant Attorney General (AAG) in charge of the Office of Justice Programs. He is currently this acting AAG. See, White House release.

More News

4/22. The U.S. Court of Appeals (DCCir) issued its opinion in Star Wireless v. FCC, denying a petition for review of a final order of the Federal Communications Commission (FCC) that imposed a monetary forfeiture for violating the FCC's anti-collusion rule. This case is Star Wireless LLC v. FCC and USA, U.S. Court of Appeals for the District of Columbia, App. Ct. No. 07-1190, a petition for review of a final order of the FCC. Judge Rogers wrote the opinion of the Court of Appeals, in which Judges Henderson and Brown joined.

4/22. House Republicans continue to give short speeches in the House regarding the expiration of FISA reform legislation. S 1927 [LOC | WW], the "Protect America Act", the temporary act enacted in August of 2007 to revise and expand federal wiretap, surveillance, and related authorities, expired on Saturday, February 16, 2008. Rep. Joe Pitts (R-PA) stated in the House on April 22, 2008, that "Today marks the 66th day since this House allowed the Protect America Act that affects foreign intelligence surveillance to expire. For over 2 months now, we have needlessly hampered our intelligence agencies' ability to conduct surveillance on foreign terrorists because some in this Chamber would rather allow the trial lawyers to have an opportunity to sue telecommunications companies that assisted the government following the September 11 terrorist attack in some 50 frivolous lawsuits in the San Francisco courts." See, Congressional Record, April 22, 2008, at Page H2494. On April 14, 2008, Rep. Paul Broun (R-GA) stated in the House that " The leadership seems more bent on protecting lawsuits than they are in protecting America." See, Congressional Record, April 14, 2008, at H2228.

4/22. The Progress & Freedom Foundation's (PFF) Bret Swanson wrote a short essay titled "The Need for Speed" in which he writes that the proliferation of high definition (HD) content on the internet will greatly expand traffic. He offers numerous technological options delivering this new HD content, and argues that Washington should not insinuate itself into this process.

EC Releases Report on US Barriers to Trade and Investment

4/21. The European Commission (EC) released a report [67 pages in PDF] titled "United States Barriers to Trade and Investment". The report lists and explains numerous US laws and procedures, some of which have protectionist purposes or consequences.

This article focuses on the items in this report that implicate information and communications technologies.

The report asserts that there are several intellectual property related barriers. It discusses the Patent Act's first to invent rule, the Hilmer doctrine in patent interference cases, US patent protection of software and business methods patents, Section 110(5) of the Copyright Act and the US failure to change this following its loss in the Irish music case before the WTO, and abusive use of the Section 337 process.

The report also reports on state barriers to direct wines sales including internet sales, federal barriers affecting telecommunications and electronic equipment, and barriers to the US export of encryption products, which the report states harms electronic commerce.

The report also asserts numerous restrictions to foreign investment in the US, including Section 310 of the Communications Act, the CFIUS review process, and US GAAP accounting standards.

Intellectual Property Related Barriers. First, the report states that "The U.S. patent system applies the principle of ``first-to-invent´´, while the rest of the world follows the principle of ``first-to-file´´, fixing thereby a clearly defined moment when the priority right to a patent is established."

The report explains that "The first-to-invent principle creates several obstacles for EU and U.S. companies trying to obtain a patent right in the U.S., namely because it has a considerable economic impact on the potential right holder."

It adds that this issue "has figured on top of the Transatlantic Business Dialogue agenda and the latter has recommended the adoption of the first-to-file approach in the U.S."

There are pending bills to transition the US patent system from the current first to invent rule to a first to file rule. See, S 1145 [LOC | WW], the "Patent Reform Act of 2007", and HR 1908 [LOC | WW], also titled the "Patent Reform Act of 2007". The main obstacle to passage is the debate over the remedy of damages for infringement. See, stories titled Bush Administration Opposes Senate Version of Patent Reform Act" in TLJ Daily E-Mail Alert No. 1,711, February 5, 2008, and "Secretary Gutierrez Writes Sen. Leahy Regarding Patent Reform" in TLJ Daily E-Mail Alert No. 1,741, April 2, 2008.

The report also states that "transatlantic differences regarding patents are exemplified by the application of the Hilmer Doctrine in patent interference cases, which has been clearly detrimental to European companies."

The report also cites the situations that "American and European law take different approaches to the question of patentability of software and business methods".

The report also raises 17 U.S.C. § 110(5). It states that "Despite a number of positive changes in U.S. legislation following the Uruguay Round, copyright issues are still problematic due to Section 110(5) of the 1976 U.S. Copyright Act (``Irish Music´´ case). Despite losing a WTO case on the issue, the U.S. has not yet brought its Copyright Act into compliance with the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs). The EU has safeguarded its rights to suspend trade benefits granted to the U.S. if the Copyright Act is not amended." (Parentheses in original.)

The report also raises the Section 337 process. It states that "Section 337 of the Tariff Act of 1930 provides remedies for holders of U.S. intellectual property rights by keeping the imported goods which are infringing such rights out of the U.S. (``exclusion order´´) or to have them removed from the U.S. market once they have come into the country (``cease and desist order´´). These procedures are carried out by the U.S. International Trade Commission (ITC) and are not available against domestic products infringing U.S. patents." (Parentheses in original.)

The report further states that "the ITC has started new investigations against a number of European and Canadian companies. In the absence of any abusive claim or dilatory claim concepts applicable to the Section 337 procedure they appear to have no other purpose than to compel the European defendants to settle."

The report suggests that the EC may file a complaint with the WTO on this matter.

State Barriers to Direct Wine Sales. The report complains about states that restrict direct wine sales, including internet sales.

The US Supreme Court has struck down protectionist state wine sales statutes that burden interstate commerce. See, opinion [73 pages in PDF] in Granholm v. Heald and story titled "Supreme Court Rules in Internet Wine Sales Case" in TLJ Daily E-Mail Alert No. 1,137, May 17, 2005.

However, the EC complains in this report that states still discriminate against EC wine sellers.

The report states that "Some state legislation prevents cross-state retail sales of wines and spirits; prohibit EU exporters from distributing, rebottling, or retailing their own wine; require duplicate label approvals; levy fees and charges; and other procedures."

The report acknowledges that "some state regulations on direct to consumer shipment are changing due to the U.S. Supreme Court's Granholm ruling. As a result certain states are now allowing shipments of wine directly to consumers if the winery obtains a permit from the state they wish to ship to."

However, it adds that "in most of the cases only domestic wineries are eligible to obtain the permit. In both cases, direct to consumers' shipment and direct distribution, state legislators do not take imported products into account when establishing regulations and appear to discriminate against foreign wines."

Telecommunications and Electronics Equipment. The report states that US regulation of electronics and telecommunications products creates barriers to EC producers.

First, it states that "The electrical safety field in the U.S. is ruled by workplace safety regulations developed by the Occupational Safety and Health Administration (OSHA), the National Electric Code and industry safety standards for electrical equipment such as Underwriters´ Laboratories (UL). European exporters of electrical and electronic equipment and appliances face steep barriers to market their products on the U.S. market."

Second, it states that "since telecommunications equipment is subject to continuous testing and assessment in its development and production process, it should be unnecessary to repeat such tests by a third party. Industry stresses the advantages of an appropriate supplier declaration of conformity. U.S. regulatory agencies have begun a review of this approach, and are moving in certain instances towards manufacturer's declarations of conformity (PCs, VCRs, for example)." (Parentheses in original.)

The report states that Federal Communications Commission (FCC) "has deregulated its requirements for wired terminal equipment attachment (much in line with the regulatory approach used in the EU). However, the FCC continues to require third party certification of radio equipment that has been deregulated in the EU in terms of technical product requirements and approval procedures." (Parentheses in original.)

The report urges the FCC to move toward a manufacturers' declaration of conformity for radio equipment. It also urges the FCC "to ensure that U.S. operators only require certification of U.S. specific operations of mobile equipment or align its regime with the EU regime."

Encryption Exports. The report complains that US law regarding encryption products presents barriers, not to sale by EC producers in the US, but to the sale by US producers in the EC.

The report states that "Potential problems are posed by the differential treatment of encryption items depending on whether they are transferred to government and non-government end users. In addition, the generalised introduction of the technical review of encryption products above a certain key length in advance of sale creates a difficulty for the European industry for cases of re-export."

The report concludes that "A combination of the continuing constraints on the export of strong encryption products and on the interoperability of systems employing such technology inhibits not only trade in encryption products but also, more importantly, the effective growth of e-commerce."

CFIUS Review Process. The also lists numerous barriers to foreign investment in the US. First, the report complains about the Committee on Foreign Investment in the United States (CFIUS).

It states that the underlying statute "requires the President to review mergers, acquisitions or takeovers that could result in foreign control of legal persons engaged in interstate commerce to determine their potential effects on U.S. national security if any." The CFIUS is the entity that actually conducts the review.

The report states that "The length of time taken by the screening process, the uncertainty, and the legal and economic costs involved potentially have a negative impact on foreign investment. Moreover, should the President decide that any such transactions threaten national security, which is widely interpreted -- he can take action to suspend or prohibit these transactions. This could include the forced divestment of assets. There are no provisions for judicial review or for compensation in the case of divestment."

Moreover, the report states that because of the vagueness of the statute, "Foreign investors may feel obliged to give prior notification of their proposed investments. In effect a very significant number of EU firms' acquisitions in the U.S. are subject to pre-screening."

GAAP and IFRS. The report also cites different accounting standards as a barrier to investment. It states that EU companies admitted to trading on the New York Stock Exchange (or other U.S. exchanges) must reconcile financial statements with U.S. accounting standards (U.S. GAAP). This means a significant cost for EU companies raising capital in the U.S." (Parentheses in original.)

However, the report also notes that the Securities and Exchange Commission (SEC) is moving towards recognition of International Financial Reporting Standards (IFRS).

SEC Chairman Chris Cox gave a speech on April 18 in which he discussed IFRS at length. He said, among other things that "Later this year" SEC staff "will formally propose to the Commission an updated "roadmap" that lays out a schedule, and appropriate milestones on which the schedule will be conditioned, for continuing the progress that the United States is making in moving to accept IFRS in this country." See, story titled "SEC Chairman Addresses Marriage of IFRS and Interactive Data" in TLJ Daily E-Mail Alert No. 1,753, April 24, 2008.

Investment Barriers in the Communications Act. The report states that "Section 310 of the 1934 Communications Act establishes restrictions to foreign investment in U.S. companies holding a broadcast or common carrier radio license (the latter include also aeronautical en route or aeronautical fixed radio station). Such licenses shall not be granted to, or held by, foreign governments or their representatives, aliens, foreign corporations, or corporations of which more than 20% of the capital stock is owned or voted by a foreign entity. Foreign indirect investment is limited to 25% subject to a public interest waiver. In addition, to provide telecommunications services, operators typically need to integrate radio transmission stations, satellite earth stations and in some cases, microwave towers into their networks. Foreign-owned U.S. operators face additional obstacles in obtaining the licensing of these various elements relative to U.S.-owned firms. As a result, the U.S. broadcasting market today is hardly accessible to foreign media companies."

The report notes that "the FCC may waive these restrictions under the current law by invoking the public interest". However, the report states that this process is "lengthy and costly" and "does not provide certainty to European operators".

Finally, it states that "The EU will continue to monitor the situation carefully and will oppose any action, through legislation or otherwise, that would conflict with the U.S. WTO commitments."

Telecommunications Regulation. The report also provides a summary of federal regulation of telecommunications and internet protocol communications. It offers an obvious conclusion: "the U.S. regulatory framework remains unstable".

It also addresses some specific barriers. "Despite the commitments made at the WTO and especially those pursuant to the GATS Basic Telecommunications negotiations concluded in 1997 and which entered into force in February 1998, European and other foreign-owned firms seeking access to the U.S. market have faced substantial barriers, particularly in the satellite sector (which has suffered from lengthy proceedings, conditionality of market access and de facto reciprocity-based procedures) and the mobile sector (e.g. investment restrictions, lengthy and burdensome proceedings and protectionist attitudes in certain congressional circles). A number of changes have been introduced, in particular in relation to the U.S. spectrum management policy and licensing procedures in the satellite sector. The EU notes these and other gradual improvements on a number of issues, but since some of the previously identified obstacles remain, must conclude that market access is still not fully ensured and this situation is not in line with the market access policy advocated by the U.S."

New Jersey Supreme Court Holds Individuals Have Expectation of Privacy in ISP Records

4/21. The Supreme Court of New Jersey issued its opinion [32 pages in PDF] in State of New Jersey v. Shirley Reid, holding that individuals have a reasonable expectation of privacy in subscriber information that they provide to ISPs, and therefore, law enforcement agencies seeking this information must obtain a grand jury subpoena.

It should be noted that this is a case applying the New Jersey constitution to searches and seizures by New Jersey law enforcement agencies. This opinion interprets the New Jersey constitution differently than federal courts have interpreted the US Constitution. Moreover, the Department of Justice (DOJ) and its Federal Bureau of Investigation (FBI), hold a decidedly different view of individual's privacy in subscriber information and other data that resides on third parties' servers.

This is a state criminal case. A grand jury of a trial court of the state of New Jersey (NJ) returned an indictment that charged Shirley Reid with violation of NJ's computer theft statute. The indictment alleged that she used her home computer, and internet access provided by Comcast, to visit the web site of a business that supplied materials to her employer, and there changed the password and mailing address of her employer.

The supplier's web server captured Reid's internet protocol (IP) number. The supplier then informed Reid’s employer of the changes. The employer reported this to a local police department, which issued a no notice 3rd party municipal subpoena to Comcast for subscriber information associated with the IP number. Comcast revealed to law enforcement that the IP address was assigned to Reid.

Reid filed a motion to suppress evidence obtained as a result of the municipal subpoena, which motion was granted. The Appellate Division of the Superior Court affirmed. In the just released opinion, the NJ Supreme Court affirmed.

The NJ Supreme Court held that "citizens have a reasonable expectation of privacy, protected by Article I, Paragraph 7, of the New Jersey Constitution, in the subscriber information they provide to Internet service providers -- just as New Jersey citizens have a privacy interest in their bank records stored by banks and telephone billing records kept by phone companies. Law enforcement officials can satisfy that constitutional protection and obtain subscriber information by serving a grand jury subpoena on an ISP without notice to the subscriber."

The NJ Supreme Court wrote that "when users surf the Web from the privacy of their homes, they have reason to expect that their actions are confidential. Many are unaware that a numerical IP address can be captured by the websites they visit. More sophisticated users understand that that unique string of numbers, standing alone, reveals little if anything to the outside world. Only an Internet service provider can translate an IP address into a user’s name."

"In the world of the Internet, the nature of the technology requires individuals to obtain an IP address to access the Web. Users make disclosures to ISPs for the limited goal of using that technology and not to promote the release of personal information to others."

However, the NJ Supreme Court declined to require notice of the grand jury subpoena, or to allow an opportunity to invoke judicial processes to quash or modify the subpoena.

It wrote that "we decline to adopt a requirement that notice be provided to account holders whose information is subpoenaed. ... For obvious reasons, notice could impede and possibly defeat the grand jury’s investigation. Particularly in the case of computers, unscrupulous individuals aware of a subpoena could delete or damage files on their home computer and thereby effectively shield them from a legitimate investigation. Banks maintain copies of the records they send their customers. But ISP providers do not have a back-up file of the information maintained on a home computer. As a result, notice could be even more damaging to an investigation in this arena."

This is a case decided under NJ state law. While NJ's constitutional protection against unreasonable searches and seizures is drafted in language nearly identical to the U.S. Constitution's protection against unreasonable searches and seizures, the NJ Supreme Court noted that "Federal case law interpreting the Fourth Amendment has found no expectation of privacy in Internet subscriber information."

Federal courts have reached a different conclusion. For example, the U.S. Court of Appeals (6thCir) held in a case involving access to electronic bulletin board subscriber information that "Individuals generally lose a reasonable expectation of privacy in their information once they reveal it to third parties." See, opinion in Guest v. Leis, 255 F.3d 325 (2001).

Guest v. Leis and other federal cases rely upon the US Supreme Court's 1971 opinion in US v. Miller, 425 U.S. 435, which was decided before the invention of the web, and the development of expectations of privacy in internet based transactions. US v. Miller involved federal efforts to prosecute a Georgia bootleg moonshiner. The Supreme Court held that the moonshiner had no expectation of privacy in records held by his bank, including checks and deposit slips.

The facts of this case provider further policy justifications for requiring outside oversight of subpoenas for information held by third parties. The Lower Township Police Department issued the subpoena itself. There was no judicial oversight or approval. Lower Township, is a small township in Cape May County in southern New Jersey. Its web site states that its population is 23,000. First, the local police issued a subpoena for evidence of a crime that it had no jurisdiction to prosecute. Second, the subpoena contained a fictitious case caption. There was no pending action.

The ACLU of New Jersey, Electronic Frontier Foundation (EFF), Electronic Privacy Information Center (EPIC), Freedom To Read Foundation, Privacy Rights Clearinghouse and New Jersey Library Association submitted an amicus curiae brief [48 pages in PDF] in which they argued for suppression of evidence. These amici argued that people have an expectation of privacy in subscriber information held by ISPs.

However, the also discussed internet transactions and data more generally. The amici wrote that "personal information that people used to keep in paper files or on computer hard drives is increasingly stored online, beyond the physical confines of home or office The method required to engage in this medium inexorably involves third parties: Internet Service Providers (ISPs). Online service providers offer their customers the ability to store photos, e-mail, calendars, and documents on the Internet. Yet this fact of modern life must not be permitted to erode privacy and speech rights."

The amici continued that "The digital revolution has given modern law enforcement unprecedented power to conduct surveillance, surreptitiously obtain personal information, exercise unlimited discretion, monitor disfavored individuals, and engage in discriminatory profiling."

They argued that "Technological change is, or should be, accompanied by the expectation that the state will exercise a duty of care. This duty of care includes holding police practices to restraints that attached prior to the digital revolution, restraints that embody the principles of due process and limited government."

This case is State of New Jersey v. Shirley Reid, Supreme Court of New Jersey.

4th Circuit Addresses Availability of Statutory Damages for Theft of Satellite Signals

4/21. The U.S. Court of Appeals (4thCir) issued its opinion [19 pages in PDF] in Directv v. Rawlins, a case regarding the availability of statutory damages in cases involving theft of satellite television signals.

This case goes to the availability of statutory damages under 18 U.S.C. § 2520(c)(2) for violation of 18 U.S.C. § 2511. The statute provides that "the court may assess" statutory damages of $10,000. This Court of Appeals held, as have others, that the award of statutory damages is discretionary. However, this Court of Appeals vacated the District Court's denial of statutory damages. The opinion sets forth several factors that the District Court must consider. District Courts are not free to deny statutory damages simply because their availability is discretionary.

Background. Directv provides television programming by direct broadcast satellite (DBS). It uses conditional access technology that encrypts its satellite transmissions. It then provides its paying customers with access cards that decrypt these satellite transmissions.

These access cards contain chips that instruct receivers to decrypt only those signals covered by the customer's subscription package. These access cards also monitor the customer's pay per view purchases.

Directv obtained business records of a seller of pirate access devices that reflected that John Rawlins purchased some of these devices. The ordinary purpose of these purchases is to access Directv programming beyond the level of a paid subscription.

DBS and cable operators bring actions to deter theft. They seek to obtain damages, costs and attorneys fees at levels that will actually deter.

In the present case, Directv filed a complaint in U.S. District Court (WDNC) against Rawlins alleging violation of 47 U.S.C. § 605(a) and 18 U.S.C. § 2511. Rawlins defaulted. Directv obtained a judgment, but the District Court declined to award it statutory damages. Directv did not seek actual damages. The District Court awarded only injunctive relief, attorneys fees and costs.

Directv brought the present appeal, solely on the issue of availability of statutory damages for violation of Section 2511. The award of statutory damages for violation of Section 2511 could provide a significantly greater deterrent.

Statutes. Section 605(a), which was enacted as part of the Cable Communications Policy Act of 1984, provides that "no person receiving, assisting in receiving, transmitting, or assisting in transmitting, any interstate or foreign communication by wire or radio shall divulge or publish the existence, contents, substance, purport, effect, or meaning thereof, except through authorized channels of transmission or reception ...".

Section 2511, which was enacted as part of the Electronic Communications Privacy Act of 1986 (ECPA), pertains to "Interception and disclosure of wire, oral, or electronic communications prohibited". It creates a civil remedy for interception of certain communications, including satellite piracy. It provides, in part, that "any person who ... intentionally intercepts, endeavors to intercept, or procures any other person to intercept or endeavor to intercept, any wire, oral, or electronic communication ... shall be punished as provided in subsection (4) or shall be subject to suit as provided in subsection (5)."

18 U.S.C. § 2520 pertains to "Recovery of civil damages authorized". Subsection 2520(a) provides that "... any person whose wire, oral, or electronic communication is intercepted, disclosed, or intentionally used in violation of this chapter may in a civil action recover from the person or entity, other than the United States, which engaged in that violation such relief as may be appropriate."

Subsection 2520(c)(2) provides that "the court may assess as damages whichever is the greater of -- (A) the sum of the actual damages suffered by the plaintiff and any profits made by the violator as a result of the violation; or (B) statutory damages of whichever is the greater of $100 a day for each day of violation or $10,000."

Court of Appeals. The Court of Appeals vacated and remanded.

It wrote that in determining whether to award damages for violation of Section 2511, Section 2520(c)(2) is controlling. It further held that the award of statutory damages is discretionary.

This is consistent with several other Court of Appeals opinions. See, for example, opinion of the U.S. Court of Appeals (11thCir) in Directv v. Brown, 371 F.3d 814, and story titled "11th Circuit Holds Award of Liquidated Damages for Violation of ECPA is Discretionary" in TLJ Daily E-Mail Alert No. 908, June 1, 2004.

See also, Dorris v. Absher, 179 F.3d 420 (6th Cir. 1999), and Reynolds v. Spears, 93 F.3d 428 (8th Cir. 1996). However, the 7th Circuit reached a different conclusion in Rodgers v. Wood, 910 F.2d 444 (1990).

The Court of Appeals vacated in the present case because the District Court abused its discretion. For example, the Court of Appeals held that it was inappropriate to consider Directv's lack of evidence of actual use of the pirate access devices as a factor weighing against the award of statutory damages. It reasoned that this evidence was not presented because Rawlins defaulted.

In addition, the Court of Appeals held that it was a further abuse of discretion not to give weight to the affidavit of a Directv employee that addressed the "severity of the violation; the degree of harm to the victim; the relative financial burdens of the parties; and the purposes to be served by imposing the statutory damages amount."

The Court of Appeals also wrote that the District Court should consider the amount that the defendant paid for pirate access devices. It is pertinent to the defendant's ability to pay damages.

The Court of Appeals rejected Directv's argument that statutory damages are mandatory when the harm is not de minimus.

See also stories titled "4th Circuit Rules DBS Providers Can Sue Pirates for Damages" in TLJ Daily E-Mail Alert No. 1,117, April 18, 2005, and "11th Circuit Limits Private Suits by DBS Providers Against Pirates" in TLJ Daily E-Mail Alert No. 922, June, 21, 2004.

This case is Directv, Inc. v. John Rawlins, U.S. Court of Appeals for the 4th Circuit, App. Ct. No. 06-1430, an appeal from the U.S. District Court for the Western District of North Carolina, at Statesville, D.C. No. 5:04-cv-00129, Judge Richard Voorhees presiding.

Supreme Court Denies Cert in Bankruptcy Case Involving Spectrum Licenses

4/21. The Supreme Court denied certiorari in Donald Thacker v. FCC, a bankruptcy case involving spectrum licenses. See, Orders List [12 pages in PDF] at page 5.

This lets stand the September 17, 2007, opinion [PDF] of the U.S. Court of Appeals (9thCir).

In 1996 Magnacom Wireless obtained spectrum usage licenses at a Federal Communications Commission (FCC) auction. As a designated entity, it made only down payments, and signed security agreements that required periodic payments over ten years. The total purchase price was $55 Million. It failed to pay the FCC. It filed a voluntary Chapter 11 bankruptcy petition. The FCC sought and received from the Bankruptcy Court relief from the stay. The FCC then cancelled the licenses. It then auctioned the spectrum again, for $287 Million.

Donald Thacker, the trustee to the bankruptcy estate of Magnacom, filed a complaint seeking proceeds from this second auction. The Bankruptcy Court dismissed the complaint, the District Court affirmed, and the Court of Appeals affirmed. Thacker then filed a petition for writ of certiorari with the Supreme Court.

See also, story "9th Circuit Rules on Effect of Bankruptcy on FCC Spectrum Licenses" in TLJ Daily E-Mail Alert No. 1,640, September 17, 2007.

This case is Donald Thacker v. FCC, Supreme Court of the United States, Sup. Ct. No. 07-803, a petition for writ of certiorari to the U.S. Court of Appeals for the 9th Circuit, App. Ct. No. 05-35839. The Court of Appeals heard an appeal from the U.S. District Court for the Western District of Washington, D.C. No. CV-04-05681-FDB, Judge Franklin Burgess presiding. Judge Sandra Ikuta wrote the opinion of the Court of Appeals, in which Judges Betty Fletcher and Harry Pregerson joined. See also, Supreme Court docket.

Supreme Court Seeks Solicitor General Brief in Case Regarding 11th Amendment and Patents

4/21. The Supreme Court issued an order in Biomedical Patent Management v. California Department of Health Services. It wrote that "The Solicitor General is invited to file briefs in these cases expressing the views of the United States." See, Orders List [12 pages in PDF] at page 4.

The patent at issue, U.S. Patent No. 4,874,693, is titled "Method for assessing placental dysfunction". That is, it pertains to testing for certain pregnancy abnormalities. However, at issue in this case is the ability of states to enforce their own patents and other intellectual property rights, while as the same time evading lawsuits for their infringement of the intellectual property rights of others.

The Supreme Court held in a string of bizarre opinions ten years ago that states have sovereign immunity in intellectual property litigation, and that the Congress cannot abrogate that immunity. The cert petition in the present case addresses when that immunity might be waived.

The original opinions were all decided by a vote of 5-4. The minority has never abandoned it opposition to these rulings. It is possible that the Supreme Court could revisit its underlying opinions. Alternatively, it might only address the issue of waiver of immunity. Or, the Supreme Court might deny certiorari, in which case the opinion of the Court of Appeals (no waiver of immunity) will stand.

The Supreme Court held, 5-4, in Seminole Tribe v. Florida, 517 U.S. 44 (1996), that the Congress lacks authority under Article I of the Constitution to abrogate the States' 11th Amendment immunity from suit in federal courts. It then held, 5-4, in Florida Prepaid v. College Savings Bank, 527 U.S. 627 (1999), that the holding of Seminole Tribe extends to patent suits.

Also, the Supreme Court held, 5-4, in College Savings Bank v. Florida Prepaid Postsecondary Education Expense Board, 527 U.S. 666 (1999), that the Trademark Remedy Clarification Act is invalid under state sovereign immunity analysis.

The 11th Amendment states that "The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State."

See, full story.

9th Circuit Holds that 11th Amendment Bars Reverse Condemnation Actions Against States in Federal Courts

4/21. The U.S. Court of Appeals (9thCir) issued its opinion [15 pages in PDF] in Seven Up Pete Venture v. Schweitzer, an 11th Amendment immunity case.

Seven Up Pete Venture (SUPV) and other plaintiffs hold gold and silver mining leases in the state of Montana. Montana enacted by initiative a statute that banned certain mining practices.

SUPV and others filed a complaint in U.S. District Court (DMont) against Barry Schweitzer, in his capacity as Governor of Montana, alleging an uncompensated regulatory taking under the 5th and 14th Amendments of the Constitution. The District Court dismissed the complaint.

SUPV and others brought this appeal. The Court of Appeals affirmed. It held that "the Eleventh Amendment bars a reverse condemnation action brought in federal court against state officers in their official capacities".

The Court of Appeals left open the possibility that SUPV could sue the state in state court for violation of its federal constitutional rights.

The Court of Appeals relied upon the Supreme Court's 1996 opinion in Seminole Tribe v. Florida, 517 U.S. 44 (1996). In Seminole Tribe and its progeny the Supreme Court held that states have sovereign immunity when plaintiffs bring actions in federal courts against states asserting rights created by federal statutes. The 11th Amendment is in the Constitution and is thus superior to statutory rights.

However, in the present case, the plaintiffs went to federal court to assert a Constitutional claim. Nevertheless, the Court of Appeals opined that this does not alter "conventional application of the Eleventh Amendment".

Moreover, the present opinion has the effect of substantially degrading rights under the 5th Amendment's takings clause. It is state governments, and their subdivisions, that engage in condemnations of real property.

Seminole Tribe and its intellectual property progeny, Florida Prepaid v. College Savings Bank, 527 U.S. 627 (1999), and College Savings Bank v. Florida Prepaid Postsecondary Education Expense Board, 527 U.S. 666 (1999), preclude intellectual property owners from bringing infringement actions against states when states infringe their patents, copyrights, or trademarks. Moreover, in patent and copyright actions there is no right of action in state courts. Hence, sovereign immunity in federal court precludes all enforcement of intellectual property rights against states.

Perhaps the holdings of these cases, when combined with the holding of the present case, support the proposition that if states were to seize or condemn intellectual property, they could not then be sued for that either, because of state sovereign immunity.

This case is Seven Up Pete Venture, et al. v. Barry Schweitzer, et al., U.S. Court of Appeals for the 9th Circuit, App. Ct. No. 06-35384, an appeal from the U.S. District Court for the District of Montana, D.C. No. CV-00-00013-CCL, Judge Charles Lovell presiding. Judge William Canby wrote the opinion of the Court of Appeals, in which Judges Susan Graber and Ronald Gould joined.


4/21. Laurence Kutner and Cheryl Olson (both of the Harvard Medical School Center for Mental Health and Media) authored a book [Amazon] titled "Grand Theft Childhood: The Surprising Truth About Violent Video Games and What Parents Can Do".

4/21. Eric Lichtblau (New York Times reporter) authored a book [Amazon] titled "Bush’s Law: The Remaking of American Justice". While this book does touch on the Foreign Intelligence Surveillance Act (FISA), Title III of the Omnibus Crime Control and Safe Streets Act of 1968, title II of the USA PATRIOT Act of 2001, other statutes affecting technology related searches, seizures and surveillance, and some judicial and executive branch opinions, this is not a book on the law. It is a recent history of U.S. policy related to fighting terrorism, written in journalistic and novelistic styles, for a broad general audience. Lichtblau will speak about this book at 12:00 NOON on April 23 at the Cato Institute.

People and Appointments

4/21. Michael Halloran, Counselor to the Chairman and Deputy Chief of Staff at the Securities and Exchange Commission (SEC), will leave the SEC in May. See, SEC release.

More News

4/21. The Supreme Court denied certiorari in Joseph Ardito v. NBC Universal, Inc., Sup. Ct. No. 07-1142. See, Orders List [12 pages in PDF] at page 5. This lets stand the October 4, 2007, opinion of the U.S. Court of Appeals (2ndCir). See also, Supreme Court docket.

4/21. The Internet Corporation for Assigned Names and Numbers (ICANN) announced that it is seeking to appoint an independent evaluator to undertake a review of the ICANN Board. See, Request for Proposals (RFP). The deadline to submit proposals is May 5, 2008.

Go to News from April 16-20, 2008.